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Posted by
donAdeo
on 2011-10-13

PUBLIC:

This post was written by Adeo Ressi - Founder of the Founder Institute and TheFunded.com, and board member of the X PRIZE Foundation. Read the full post on the Founder Institute Blog here.

When you ask a successful entrepreneur how they did it, you are almost guaranteed to hear them cite “luck” as a prominent factor. Why? Because most major decisions in a startup are "life or death," and to succeed you need to make the correct call on many of these decisions. In such a context, survival and success appear lucky. Well, it's not.

With startups, being fast is actually better than being right. A founder needs to make hundreds of critical decisions, and any indecision can literally grind all progress to a halt. Hesitating, over-analyzing, or 'waiting to see what happens' are all forms of indecision, and when you are indecisive you let the world decide the outcome for you. Indecision leaves the outcome to chance, and your chances as a startup are bad to begin with.

Making decisions that are both fast and correct is no small feat, and is a skill that will develop over time, but here is a simple decision-making framework that I use to make decisions quickly. Indecision is death for a startup, so here's how you can avoid it;

1. Boil it down to a binary decision.The first thing to do is boil your decision down to a simple binary statement. For example, if your development is slow, there are a lot of things that you could do. There may be seemingly hundreds of options. Simplify it. You can choose to (1) replace or (2) fix your development organization. Hoping the problem will go away is not a decision. Any complex problem, decision or opportunity can be boiled down to a binary statement. Try it with a tough decision that you are facing now…

2. Make the decision quickly.Next, just pick. Flip a coin. Throw a dart. Pull a card. Draw a straw. Whatever. Just pick. If you're lucky, when you pick one, you'll feel a sigh of relief that indicates you picked the one your "gut" likes. Sadly, in many cases, both options suck, and your gut will resist both. On the bright side, with the life or death decisions, you still have a 50/50 chance of getting them right.

Whatever you do, don’t hesitate. Not too long ago I was running a fast growing business and we acquired a foreign subsidiary that took over technology development. When product releases began to slow dramatically, I had a simple decision to make: (1) replace them or (2) fix them. Instead, I was indecisive and waited to see what would happen, hoping the problem would fix itself. When that didn’t happen, I ultimately was forced to sell the business for less than I felt it was worth. Meanwhile, better organized competitors launched multi-billion dollar businesses. I hesitated, and it cost me. It will cost you too.

3. Execute and observe.Now execute. Immediately. Just do it. You'll know very quickly if it's the wrong decision. In fact, have your sensors on high alert to look for clues to whether you were right or not. A lot of decisions are so hard that they will feel wrong, but look for empirical clues to measure the success of the decision. You may even want to try and outline a couple conditionals up front, which we'll cover in a moment.

4. Adjust if necessary.The moment there is clear evidence that you are wrong, whether it be a bad hire or a poor product release, drop everything and fix it. In at least half of the cases, you will be able to recover. So, even when you make a life or death decision quickly, your odds of survival are in excess of 75%, so just decide.

For the toughest decisions, introduce conditionals.Now, some decisions are really brutal, such as the need to cut significant staff, take a pay cut, or sell your home. This is the life of a founder. When things get really tough, I personally use conditionals to help with the decision making process. Conditionals are simple if / then statements that help to take the sting off the toughest decisions. Here's an example.

Back in the 90's I was running a fast growing business that had cash-flow issues. A major customer owed us nearly a million dollars, and we had a couple weeks of payroll in the bank. My binary decision was to (1) cut staff and survive until we were paid, or to (2) win some new business to cover the period until we could collect. So, I introduced a conditional: if I could not get two months of cash-flow from new business within two weeks, then I would cut the staff as needed.

If I failed to get new business, then I would have to cut much deeper than if I cut right away. However, the identification of a conditional trigger point for the tough decision acted both as a motivator and as a calming agent. I had a target to shoot for, which we eventually hit. That business sold for approximately $100 MM.

There you have it: a simple decision-making framework for startups. (1) Boil it down to a binary decision. (2) Make the decision quickly. (3) Observe the outcome. (4) Adjust if necessary. And, introduce a conditional for the toughest decisions. Whatever you do, don't hesitate.